Welcome to short-term rental riches will discuss investing in real estate but with a specific focus on short-term rentals quick actionable items to acquire manage and scale in your portfolio I’m your host Tim Hubbard.

Welcome back everyone I’m happy you’re back again to discuss a nother topic very important topic maybe maybe the. Most. Exciting sort of fanatical topic of the short term rental industry probably because it’s relatively easier to get started with that’s rental arbitrage and so we’ll talk about today and I mention in the past but I wanna talk today about how these expensive markets once it I wouldn’t ever recommend investing in. Can I actually do really well for rental arbitrage. It’s almost like there’s a flip the opposite of the properties that make sense to invest an opposite those areas. You know places that are more expensive those can be very good places for rental arbitrage so we will dive into that today and don’t want to base some of the information off of a report that came out from air DNA. Your DNA provides statistical data for short term rentals just dawned on me that in all these places are recommend not to invest in are actually really good for rent arbitrage and rental arbitrage can be very good for lots of people who maybe aren’t ready to invest don’t wanna invest or want to get started sooner or maybe they want to get started in the area where they live and that doesn’t make sense to invest so by leasing a property then sublease intent and making the difference that’s what’s known as rent arbitrage and we’re gonna talk about some of these areas today so let’s talk about this report that came out from air DNA and they rated the top 50 cities in the U. S. so this is in the U. S.. For rental arbitrage. And you know one of the most desirable places are most lucrative I should say where had the biggest returns for rental arbitrage is in California I’m originally from California I’m pretty familiar with at least a northern California real estate markets the returns that you can get from purchasing properties and acquired properties but I found it really interesting I mean it makes sense and I can explain why why it makes sense that these areas do well for an arbitrage and places popped up like napa California Santa Rosa Monterey Santa Barbara he’s a really expensive areas to purchase property. Wine country really nice areas that are awesome to visit arsenal to live there I mean great beautiful weather also on this list from air DNA we had lots of places in Hawaii in New York and lots of places you know like ski resorts and. Vacation rental areas which you think of when you think of occasional you know on the beach somewhere so why are these properties why do they make sense for an arbitrage but not to invest in we can break it down with the simple metric I’ve talked about before and that’s a rent to value ratio the city wanted you rental arbitrage in Santa Rosa great wine country area. Maybe buy a house for 0 Bucks yes I’m going to be super fancy home most likely properties just darn expensive out there let’s say you bought that property to rent it out to a long term tenant. Well maybe you could run and for that I don’t know 4000 a month maybe more than that just spending on how big it was or say you know this is a property in Santa Barbara something I don’t think $1000000 is going to go very far but there seems to be a cap on the monthly rent that we can get from long term tenants. So it’s $1000000 property in Santa Barbara which may not be much of an all could run for $4000 a month. Well that is 8.4 percent rent to value ratio so I can run through these numbers real quick and then we’ll recap I’m just just so that it’s clear for everyone now let’s say that Santa Barbara home only cost $100000 and it rented for. $1000 a month that would be a one percent that’s what a lot of people are looking for cross US for a long term rental returns as a one percent so that property if we just took those 2 scenarios that said the Santa Barbara property rents for $4000 a month but costs 1000000 and then let’s take a property in the mid south cost 100000 and it rents for $1000 a month well that mid south property based off those rents is earning 2.5 times more of the return so it’s 31 percent Santa Barbara is always gonna point 4 percent so it’s much better to purchase a property with a higher rent to value ratio now on the flip side and this is why this Santa Barbara property could do really well as a lease arbitrage because you’re getting a deal on that property if you rented it for $4000 a month. It’s a good deal and that’s what you know what we say let’s live where we want to live but let’s invest where it makes sense so if you’re spending $4000 a month on a property costs $1000000 yeah I’d say you get a good deal now with the lease arbitrage a lot of times these short term and nightly rates can go really high where is the long term rents can go high yeah but they don’t get crazy high where is the short term rents maybe you’re getting you know 34 $500 a night which $500 a night you know you’re looking at like $15000 a month that’s not uncommon in a lot of these areas that are expensive these wine country areas these you know dense urban cities like in New York for example which is also on the list for being 1 of the best places for lease arbitrage. So hopefully that makes sense I mean on a very. Basic level we’re getting more bang for the Buck it for actually renting these properties and the really expensive areas. Because the nightly rate so we’re going to get Kim P. really good so that’s worked for a lot of people lot of friends of mine have done this people I’ve met at conferences that just specialize in this and that can be really good and the other great thing about this and this is if you know if you haven’t started investing yet. You’re gonna learn all of the exact same operations you can use the same tools you can use the same platforms everything that you learned operating the short term rentals even if it’s on the lease arbitrage model you can use for your properties that you purchase an acquired because the operations are going to be essentially exactly the same and. Those operational tools and things that we set up as we know are are very scalable you can they’re all online for the most part and it’s so you can apply those to art to wear so that’s a great thing I’ll be easier to get into these properties you sign a lease and put down a down payment you don’t have to go through inspections and all this however there are those few things that you want to make sure that you consider so you will want your lease to specify that you can sublease of course otherwise you’d be doing it without the landlord’s permission which when beginning to get shut down pretty easily I wanna make sure that if this properties and NHO a building association that they don’t have rules against it and it would probably be wise to have an addendum in your lease that says if the owner decides to sell the property or if the regulations change that you have however long you feel comfortable with I’d suggest maybe like a 3 month window to. Stop your reservations to give you time to accommodate the people are already booked your property because if someone decides to sell or the regulation change overnight and you have to cancel people’s reservations that’s gonna hurt you. So the benefits you know you can do this in a lot of years it all make sense to invest in if you’re living in one of these areas me great opportunity you can get right in you can do it quicker you learn all the same operations and you can do really well and the downsides I like to talk you know just about investing and we’re not really investing if were. Using this model because you know there’s no principal pay down there’s no appreciation you can’t leverage the financing and at the end of the day or not really building wealth aside from the cash flow the churning which could be really good so just to reiterate that I think we started charge is awesome but at the end of the day it is different than actually investing and that’s why these properties that are really expensive and that I wouldn’t normally recommend purchasing can do really well police are trash so that is the difference in a not show the properties for lease arbitrage are totally different than the properties. We want to acquire for short term rentals totally totally different and so hopefully that helps him hopefully if you’re considering doing this if you haven’t yet take a look at that lease arbitrage model and there’s a bunch of info online there’s some YouTube channels there may be automated I think it’s one that focuses just solely on lease arbitrage she gets really good info there and also if you’re curious take a look at the air DNA report they’ve got some really good data it should be available on their website it’s error DNA just Google it. Until next time I’ll be on a wonderful day. I want to get on the fast track to financial freedom for short term rentals what all searching the properties you choir you want to make sure that you acquired the right properties I want to give you my you doctor will show you how to do just that there is no charge to my gift to you for being one of our subscribers just go to restmethods.com that’s R E S T methods.com.

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